Can the IRS be Efficient and Effective at the Same Time?

The Internal Revenue Service (“IRS”) is responsible for assessing and collecting taxes, enforcing tax laws, and helping taxpayers comply with our laws. There are a number of varying policies and circumstances that the IRS has to get involved in while administering the tax system.

This can put the IRS in odd positions. There can be tensions between the IRS’s goals, particularly when resources are tight and the IRS must prioritize certain tasks over others. For example, the IRS exam function may undertake efforts to audit and assess additional tax for a taxpayer. The IRS collection function may take steps to evaluate and accept an offer in compromise to reduce and settle the taxpayer’s balance as it is too busy and doesn’t have enough staff to really focus on collections.

It is against this backdrop that one can consider whether the IRS is able to balance efficiency in assessing and collecting tax and efficiency in its operations. Can the IRS be more efficient and effective at the same time?

The Challenge

The IRS faces a number of significant challenges that can make it difficult to balance its dual mandate of enforcing tax laws and collecting revenue while providing effective and efficient customer service to taxpayers. One of the primary challenges facing the IRS is budget cuts, which have reduced the agency’s resources and made it more difficult to carry out its responsibilities.

In addition to budget cuts, the IRS also faces challenges related to outdated technology. As technology has advanced in recent years, the IRS has struggled to keep pace with these changes, leading to outdated systems and processes that can be inefficient and time-consuming. This can make it difficult for the IRS to provide timely and accurate information to taxpayers, and can also make it harder for the agency to process tax returns and other filings in a timely manner.

Another challenge facing the IRS is the increased workload that comes with enforcing tax laws and collecting revenue. With tax laws becoming more complex and taxpayers facing increasing financial pressures, the workload for IRS personnel has grown substantially in recent years. This can make it difficult for the IRS to maintain efficiency and provide effective customer service, particularly when resources are tight.

Despite these challenges, the IRS has made significant strides in improving both its efficiency and effectiveness in recent years. For example, the agency has implemented a number of digital initiatives, such as allowing taxpayers to file amended tax returns electronically, that have streamlined processes and reduced the time and effort required for taxpayers to make corrections.

The IRS has also implemented more flexible payment terms and relief options for taxpayers struggling with tax debts, making it easier for them to pay what they owe and avoid penalties and other consequences. By taking these steps, the IRS has improved its ability to balance its dual mandate of enforcing tax laws and collecting revenue while providing effective and efficient customer service to taxpayers. However, there is still more work to be done to address the challenges facing the agency and ensure that it can continue to meet the needs of taxpayers in an increasingly complex and rapidly-changing world.

The Solution

Despite these challenges, it is possible for the IRS to be more efficient and effective at the same time. One solution is to invest in modern technology that streamlines the tax-filing process and allows the IRS to process returns more quickly and accurately. Another solution is to provide IRS employees with additional training on how to communicate with taxpayers effectively and professionally.

Embrace Digitalization

One way the IRS can improve its efficiency is by embracing digitalization. The IRS has already made progress in this area by implementing automated data processing systems in the 1960s. However, more can be done to simplify and improve digital communications with taxpayers.

The agency has already made significant progress in this area, implementing automated data processing systems in the 1960s that have helped to streamline operations and improve accuracy. However, there is still more that can be done to simplify and improve digital communications with taxpayers. By investing in modern technology and improving its digital systems, the IRS can reduce the time and effort required to process tax returns, allowing the agency to focus on other important tasks. This can help to reduce the backlog of unprocessed returns and ensure that taxpayers receive timely and accurate information about their tax obligations.

Increase Staffing

Another way the IRS can become more efficient is by increasing staffing levels. The agency’s workforce and budget have been shrinking in recent years, even as tax laws have become more complex. Increasing staffing levels can help the IRS process tax returns more quickly and accurately, reducing the backlog of unprocessed returns and freeing up resources for other tasks.

As tax laws have become more complex in recent years, the agency’s workload has grown substantially. However, budget cuts and other factors have led to a shrinking workforce and reduced resources, making it difficult for the IRS to keep up with demand.

By increasing staffing levels, the IRS can ensure that it has the resources it needs to process tax returns and provide timely and effective customer service to taxpayers. This can help to reduce the backlog of unprocessed returns, improve accuracy, and ensure that taxpayers receive the assistance they need to comply with tax laws.

Improve Employee Training

To improve its efficiency, the IRS can also focus on improving employee training. Providing additional training on tax laws and regulations can help IRS employees process returns more accurately and efficiently, reducing the need for further review and correction. Additionally, providing training on effective communication with taxpayers can improve customer service and reduce the need for follow-up communication.

This also involves training employees to focus on important issues–issues that not only bring in tax revenues but that are actually supported by the public generally. A court case that highlights the challenges faced by the IRS in balancing efficiency in assessing and collecting taxes and efficiency in its operations is Mayo Foundation for Medical Education and Research v. United States.

In this case, the Mayo Clinic challenged the IRS’s determination that certain payments to its doctors were subject to federal employment taxes. The Mayo Clinic argued that the payments were exempt from employment taxes under the “student exception” to the tax code, which exempts payments to students who are enrolled in a full-time course of study and work for the institution they are attending. The case ultimately went to the Supreme Court, which ruled in favor of the IRS. This is clearly the position that the public would support.

The case also underscores the importance of the IRS maintaining credibility with the public while enforcing tax laws and assessing and collecting taxes efficiently. By providing clear guidance on tax laws and regulations and communicating effectively with taxpayers, the IRS can better handle complex cases like the one in Mayo Foundation and maintain the public’s trust in its operations.

The Takeaway

While the IRS faces significant challenges in balancing efficiency and friendliness, it is possible for the agency to achieve both. By investing in modern technology and providing employee training, the IRS can streamline its operations while maintaining a friendly and professional demeanor. With increased funding on the horizon, there is hope that the IRS can continue to improve its service to taxpayers.